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DRIFTING ON A CALMA CHICHA AFTER COUNTLESS STORMS: How macroeconomic uncertainty affects firms' de cisions to innovate in emerging countries

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  • Valeria Arza
  • Elisa Giuliani
  • Federica Nieri

Abstract

Emerging economies are subject to macroeconomic fluctuations and policy swings which generate firms' uncertainty about the future behavior of key macroeconomic variables. Drawing on the theory of irreversible investments, we focus on innovation and suggest that macroeconomic uncertainty may be a core factor explaining why firms in developing countries struggle to innovate. Using micro data on Argentinean firms during the 1990s, we find that this is particularly the case for firms performing below their aspirations as they fear losses more than potential gains, and for domestic firms, which, as opposed to subsidiaries of multinationals, cannot diversify their risk internationally.

Suggested Citation

  • Valeria Arza & Elisa Giuliani & Federica Nieri, 2019. "DRIFTING ON A CALMA CHICHA AFTER COUNTLESS STORMS: How macroeconomic uncertainty affects firms' de cisions to innovate in emerging countries," Discussion Papers 2019/251, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    • Handle: RePEc:pie:dsedps:2019/251
    Note: ISSN 2039-1854
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    More about this item

    Keywords

    Macroeconomic uncertainty; innovation; emerging countries; Argentina;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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